IT NEVER CEASES TO amaze me how the Government introduces policy that stifles consumption and still expects the economy to show signs of genuine recovery.
This amazement reached its peak in 2016, following the country’s most destructive Budget ever in June 2015.
The minister of finance identified three objectives in the devastating Budget that have not been achieved.
He stated: “I am pleased to be able to report to this House and the country that the foreign exchange reserves have been restored and are stable at levels adequate to protect the fixed exchange rate. At the end of March 2015, reserves stood at $1 135 million or 16.1 weeks of imports . . . .”
In the Central Bank’s press release for March 2016, it was reported that the reserves stood at $940 million or 14 weeks of imports. So the tax-filled Budget of 2015 did not restore and stabilise the reserves. In fact, they fell by almost $200 million, notwithstanding the increased tourist arrivals and the reduced oil import bill. Any objective analyst would conclude that the Budget failed to achieve Objective 1, in spite of the very favourable environment.
The second objective was to reduce the fiscal deficit. To achieve this, the minister of finance “projected [a] net gain of $200 million in additional revenue” from the tax measures introduced in the Budget.
According to the press release, the fiscal deficit worsened by $88 million by the end of March 2016. It was noted that “revenue estimates were overestimated based on the implementation of the June 2015 fiscal measures”. So Objective 2 also failed, notwithstanding the revenue measures. The question is, why?
The answer is simple. The economy is suffering from fiscal drag. This is the result of excessive taxation that acts like a parachute on an aircraft that is willing to lift off, but has an impediment. It does not make sense to repeatedly do the same thing with the same result and continue to do it in the face of failure.
A word to the Government and its economic advisers: please desist from using an accrual accounting system that you know is not yet worthy of public consumption. Its use seems to be designed to confuse the presentation of the fiscal accounts.
The third objective was to “lay the foundation for returning the Barbados economy to a sustainable growth path”. The path was not defined. However, it may be assumed that tourism is to lead the economy on to this path. It is further assumed that “sustainable” has to do with the earning of foreign exchange. Therefore, tourism is further burdened to deliver the sustainable growth.
The peaking of my amazement is directly connected to the fact that the tourism sector has had a stellar year in terms of arrivals and economic growth is still anaemic. By now, the Government must be aware that an economy cannot be left to spending by tourists alone to experience genuine growth.
On a good day during the last winter season, there were about 20 000 tourists on the island, using a generous average length of stay of just under ten days per tourist. It is expected that the tourist spends on average more than a Barbadian, but there are approximately 14 Barbadians to one tourist. Common sense must dictate that an economic strategy that stifles Barbadian spending cannot lend itself to economic recovery, especially when it has been happening for the last eight years.
As constructed, which the minister of finance did not explain, the income tax measures in the June Budget will take real effect in the current fiscal year 2016/17, which started in April. In fact, Barbadian taxpayers only started to feel the full effect of the measures when they submitted income tax forms for 2015 income year.
People who previously received refunds immediately recognised a substantial drop in the usual amount or, in many cases, found themselves paying the Government instead of receiving a refund.
In fact, last year’s income tax measures were designed to prevent the Government from paying out over $68 million in refunds to approximately 62 100 taxpayers. Imagine the impact of the Government taking away this amount of money or indeed more, according to other estimates, from Barbadians. Then further imagine the implication for spending or consuming in the economy for 2016.
Why is the Government still looking to tax Barbadians as suggested by its chief economic adviser? The answer is that numbers are more important than people.
• Dr Clyde Mascoll is an economist and Opposition Barbados Labour Party advisor on the economy. email: clyde_mascoll@hotmail.com